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Monday, 26 March, 2001, 16:27 GMT 17:27 UK
Telecoms chiefs face debt crunch
If you're one of those wondering if your shares in British Telecom will ever pull out of their slump you might spare a thought for investors in Europe's other big former state telecoms monopolies.
BT investors may have seen their shareholdings slump 59% in value over the past year but shareholders in France Telecom and Deutsche Telekom are nursing paper losses of 71% and 74% respectively.
And shares in Dutch operator KPN have proved the worst investment of the lot over the past year, dropping 85%.
In all cases, the main reason for investor concern has been the huge level of debt the companies have built up acquiring third-generation (3G) mobile phone licences and investing in new mobile, data and internet services.
Even when market conditions were favourable, some analysts questioned the wisdom of spending so much on services where revenue and profitability were so uncertain.
No longer viable
Now, with growing doubts about the health of the world, and particularly the US economy, and fears that telecoms was part of a more general tech stock boom unjustified by the fundamentals, telecoms firms are under heavy pressure to find ways of reducing debt without destroying shareholder value.
In practice, this means that selling shares in mobile divisions - once the most favoured option - is no longer viable in the short term.
BT, Deutsche Telekom and KPN had all been hoping to float their mobile arms this year but will have been discouraged, to say the least, after seeing the way France Telecom was forced to knock down the price of Orange shares to ensure that flotation got away safely.
Some asset sales unavoidable
Companies will want to delay selling these prime assets while markets remain depressed but their debt problems are such that they will probably be unable to avoid selling some assets, including minority stakes in other telecoms operators, at bargain basement prices.
Other measures, such as property sales and bond issues, are unlikely to generate enough cash.
Deutsche Telekom and France Telecom have already said they are to dispose of their 10% stakes in US operator Sprint (France Telecom might also dump stakes in STMicroelectronics and Sema), while KPN is looking at cashing in stakes in Irish, Czech and Hungarian operators.
BT's investments in Italian and Japanese operators are also looking increasingly unattractive from a shareholder point of view.
Market conditions mean the future of telecoms firms' chairmen and chief executives - and their companies' share prices - now depends substantially on strategies put in place for reducing debt.
Company bosses failing to deliver on debt reduction promises will be putting their jobs at serious risk while those failing to convince investors that their plans are realistic are unlikely to be given time to show otherwise.
At BT, much is expected of finance director Philip Hampton, viewed by some as chief executive-in-waiting.
However, having cancelled a meeting with key shareholders last week, the company has yet to spell out in full how it will proceed.
A rights issue - under which shareholders would be invited to buy new shares at a discount to the market price - is thought unlikely to be accepted by key investors without further details of overall strategy and the scalp of chief executive Sir Peter Bonfield or, possibly, chairman Sir Iain Vallance.
Though much has been made in the UK of BT's troubles, other European telecoms executives are also under pressure.
Deutsche Telekom chief executive Ron Sommer has been heavily criticised not only for 3G-related debts but also for the collapse of merger talks with Telecom Italia and for agreeing to pay $34bn - which some said was too much - for US long-distance carrier Voicestream.
While the company is said to be considering a securitised bond issue, Mr Sommer still faces critical decisions over the intended flotation of mobile arm T-Mobile.
Several times in the past few months, Deutsche Telekom has been forced to deny rumours that Mr Sommer had already resigned.
France Telecom better regarded
France Telecom has the biggest debt of any European telecoms company, after acquisitions including Orange, data carrier Equant and internet service provider Freeserve.
But it remains better regarded than BT by most analysts because of more exciting growth prospects and a more convincing transformation from stodgy fixed-line monopoly to international mobile and internet giant.
While France Telecom undoubtedly faces a challenge reducing debt - and any sustained fresh deterioration in market conditions would be a severe blow - analysts believe it has a more coherent and promising international strategy than BT.
Despite the sharp fall in the company's share price, investors seem prepared to give chief executive Michel Bon more time.
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